The build up to the late September OPEC meeting in Algiers will undoubtedly be filled with rumors and speculation about the intents of OPEC members and the potential to freeze, increase, or decrease production. News of the meeting and the potential for a production freeze has already created a rise of around 13% in oil price.
Saudi Arabian Oil Minister Khalid Al-Falih said that the he would support an oil-output freeze and the results would likely be positive, but ruled out the likelihood of a production cut. This comes on the heels of Saudi Arabia reaching record production levels in June.
Iraq’s new Oil Minister Jabbar Al-Luaibi has asked the multinational corporations extracting oil on Iraqi lands to increase output. A ramp-up in production ahead of the September meeting would give Iraq a higher production level at which to freeze. However, Iraq has yet to announce if Al-Luaibi will be in attendance at the Algiers meeting.
Russia has announced their participation in the meeting despite not being a cartel member. The Russians are a major distributor of oil and gas to the European market.
Iran has announced that the country’s Oil Minister will be in attendance at the OPEC meeting in Algiers scheduled for late in September. This signals that the holdout from the Doha meeting in April might be ready to play ball with other cartel members.
Iran’s Stipulations
Iran’s oil minister Bijan Zanganeh released a statement saying that the country was willing to “help other oil producers stabilize the world market,” but there were conditions placed on the country’s involvement.
Iran’s involvement is conditional on exclusion from the oil-output freeze and being allowed to continue on its path to recovery from sanctions.
“Iran will cooperate with OPEC to help the oil market recover, but expects others to respect its rights to regain its lost share of the market,” Minister Zanganeh was quoted as saying by SHANA, the oil ministry’s news agency.
Iran was unwilling to cooperate with other OPEC members at the Doha meeting in April, one of the main roadblocks to the cartel reaching an agreement. By placing themselves on the outside of the production freeze, Iran has again placed a barrier between themselves and other cartel members. Iran’s involvement is a positive sign, but the wedge between the country and other OPEC members does not generate optimism for an agreement.
How Much Effect will a Freeze Have?
OPEC production levels have increased to 33.2 million barrels per day in July. According to Bloomberg data, the cartel’s capacity is 36.9 million barrels per day, meaning that the cartel is already closing in on peak production levels. Iraq is looking to increase production levels ahead of the meeting. Iran has signaled their intent to push more production to market despite the fact that its production has stalled in the last few months.
“A freeze signifies that everybody is content with where the market is today and they want it to be trending in that direction,” said Saudi Arabia’s Oil Minster Al-Falih. “It is trending towards soaking up and absorbing, removing, the inventory overhang. There is the freeze that is official, and there is the freeze that is practical. Today, when you think about it practically, many countries today are at their capacity. Their room for an increase is limited, certainly for the short or medium term.”
Al-Falih tempered his comments in an interview with Reuters, “We don’t believe any significant intervention in the market is necessary other than to allow the forces of supply and demand to do the work for us.”
The Volatility will Continue
The OPEC meeting is still roughly a month away, and the anticipation is already palpable. So far, Russia and Saudi Arabia have touted the benefits of a production freeze. Iran has declared they will likely not take part in an agreement to freeze production, even though the country may not have capacity to increase production levels. Iraq has pushed companies to increase production ahead of the meeting and not remain at current production levels should a freeze occur.
The news is likely to continue to trickle out from OPEC members over the course of the next month, and the market will be all ears for any indication of the viability of a production freeze, or lack thereof. The movement in oil price in the last few weeks has already signaled the markets’ interest in the meeting. Time will tell what the ultimate result is, but speculation over the outcome may cause a bumpy ride along the way.
